Can NRIs Contribute to NPS and Atal Pension Yojana

Last month, a software engineer in Dubai asked us a question that comes up often: "I want to build a pension corpus in India. Can I invest in government schemes like NPS or Atal Pension Yojana?"

The short answer: Yes for NPS. Complicated for APY. Let us explain the nuances.

National Pension Scheme (NPS): Open to NRIs

Good news first. NRIs can absolutely invest in NPS. The Pension Fund Regulatory and Development Authority (PFRDA) explicitly allows Indian citizens living abroad to participate.

Here's what you need to qualify:

Eligibility criteria:

• Age between 18-70 years
• Must be an Indian citizen (holding Indian passport)
• Valid PAN card
• Completed KYC verification
• NRE or NRO bank account in India

Also Read - PAN Card for NRIs: How to Apply.

Who cannot join:

• OCI (Overseas Citizen of India) cardholders
• PIO (Person of Indian Origin) cardholders
• Anyone who has surrendered Indian citizenship

👉 Tip: Use our Residential Status Calculator to confirm your eligibility status before applying.

Also Read -Pravasi Pension Scheme for NRIs & Residents

How NPS Works for NRIs

NPS operates through two account types:

Tier I (Mandatory): Your primary pension account with restrictions on withdrawal until retirement. Minimum annual contribution is ₹6,000 (or ₹500/month). This is where you get tax benefits.

Tier II (Optional): A voluntary savings account linked to Tier I. More flexible withdrawals but no tax benefits for most subscribers. Note: NRIs may face restrictions on Tier II accounts under current rules.

Investment choices:

You can select from two approaches:

Active Choice: You decide how to split your money across equity (E), corporate bonds (C), government securities (G), and alternative investments (A). Maximum 75% can go to equity in Tier I.

Auto Choice: The system automatically adjusts your asset allocation based on your age-more equity when young, shifting to bonds as you approach retirement.

Expected returns: Based on 10-year historical performance, NPS equity schemes have delivered 12-15% annually, while government securities average 9-10%.

Also Read -RBI's New Rules for Investment - What Every NRI Must Know

NPS Tax Benefits for NRIs

This is where NPS gets attractive for NRIs with taxable income in India.

At maturity:

• 60% lump sum withdrawal: Completely tax-free
• 40% mandatory annuity purchase: Tax-free at purchase, but pension income is taxable

If your total corpus is ₹5 lakh or less, you can withdraw everything as lump sum without buying an annuity.

Also Read -Old Tax Regime Vs New Tax Regime - What Should NRIs Choose

👉 Tip: If you're filing ITR as an NRI under the old regime, NPS contributions can reduce your Indian tax liability by up to ₹2 lakh.

Atal Pension Yojana (APY): The Complicated Picture

APY is designed primarily for workers in India's unorganized sector. For NRIs, the situation is murky.

The official position: APY requires subscribers to be Indian citizens aged 18-40 with a savings bank account. Some banks like Union Bank of India state that NRIs with Indian bank accounts can join APY.

The catch: If you become a non-citizen of India, your APY account will be closed. You'll receive your contributions plus net interest earned, but lose any government co-contribution benefits.

Additional restrictions since October 2022: Income tax payers are not eligible to open new APY accounts. Since most NRIs earning abroad would have Indian-source income triggering ITR filing requirements, this effectively excludes many NRIs.

Honest advice: APY's maximum pension is just ₹5,000/month. The contribution amounts are small (₹42-₹1,454/month depending on age and pension choice). For NRIs with meaningful savings, NPS offers far better flexibility and growth potential.

NPS vs APY: Quick Comparison

How to Open NPS Account as an NRI

Online method (eNPS):

1. Visit the eNPS portal
2. Select "Registration" and choose "Non-Resident of India" as status
3. Enter PAN, passport details, and bank account information
4. Select "Repatriable" or "Non-repatriable" based on your preference
5. Complete eKYC using Aadhaar or upload documents
6. Make minimum contribution of ₹500
7. Submit signed application to CRA within 90 days

Offline method:

Visit any bank branch designated as Point of Presence (POP) for NPS. Major banks like SBI, HDFC, and ICICI offer this service.

Documents required:

• Passport copy
• Overseas address proof
• PAN card
• Cancelled cheque from NRE/NRO account
• Passport-size photograph

👉 Tip: Contributions must come from your NRE or NRO account. Direct transfers from overseas accounts aren't accepted.

What Happens If Your Status Changes?

NRI becomes Resident Indian: Your NPS account continues without interruption. You can keep contributing and claim tax benefits as a resident.

Indian citizen surrenders citizenship: Your NPS account will be terminated. The entire corpus will be paid out, but you lose the annuity option and future tax benefits.

Resident Indian becomes NRI: Your existing NPS account remains active. Update your bank details to NRE/NRO and continue contributions.

Better Alternatives for NRI Retirement Planning

NPS is solid, but it shouldn't be your only retirement vehicle. Here's what I recommend to clients:

For guaranteed, tax-free returns: GIFT City USD Fixed Deposits offer 5-6% in dollars with zero Indian tax. No currency risk if you're retiring outside India.

For growth with flexibility: Mutual funds for NRIs allow you to invest in Indian equity markets with easier liquidity than NPS.

For higher returns with longer lock-in: GIFT City AIFs offer institutional-grade investments with tax advantages, though minimum investment is $75,000.

For currency-protected safety: FCNR deposits keep your money in foreign currency while earning tax-free interest.

Compare all your options using our NRI FD Comparison Tool.

The Bottom Line

NPS works well for NRIs who want a regulated, low-cost retirement savings option with tax benefits on Indian income. It's particularly useful if you're planning to return to India eventually.

APY, while technically accessible to some NRIs, isn't worth the complexity. The pension amounts are too small for anyone with meaningful overseas earnings.

Our recommendation: Use NPS as one component of your retirement strategy-perhaps 20-30% of your total allocation. Complement it with growth-oriented investments and currency-protected options based on where you plan to retire.

Have questions about retirement planning as an NRI? Join our WhatsApp community where 5,000+ NRIs discuss investment strategies daily.

Want to explore all your options in one place? Download the Belong app for GIFT City investments, FD comparisons, and personalized guidance.

Sources:

• PFRDA NPS Guidelines for NRIs
• eNPS Portal
• ClearTax NPS Guide 2025
• Department of Financial Services - APY